Financial sector distress, or the threat thereof, may warrant intervention by the public sector. Because of the public good character of financial sector soundness and confidence in the financial system, markets may fail to respond appropriately to financial sector distress and associated systemic consequences, which may entail high social costs. Specifically, public intervention may be justified when the functioning of the payment system and financial intermediation are threatened, including when “bank runs” spread outside insolvent banks and deprive even solvent banks of liquidity or when credit extension dries up because of bank failures.